United States v. Stein

UNITED STATES OF AMERICA, Plaintiff, v. MICHAEL STEIN, et al., Defendants.

No. 21-20321-CR-ALTONAGA/TORRES

United States District Court, S.D. Florida

July 23, 2021

ORDER ON DEFENDANT'S MOTION TO QUASH

EDWIN G. TORRES, UNITED STATES MAGISTRATE JUDGE

This matter is before the Court on Michael Stein's (“Defendant”) motion to quash two grand jury subpoenas issued to Growthlogix, LLC (“Growthlogix”), and 1523 Holdings, LLC (“1523 Holdings”) [D.E. 15]. The Government responded to the motion on June 29, 2021 [D.E. 21] to which Defendant replied on July 6, 2021. [D.E. 23]. Therefore Defendant's motion is now ripe for disposition. After careful consideration of the motion, response, reply relevant authorities, and for the reasons discussed below Defendant's motion to quash is DENIED.^[1]

I. BACKGROUND

A federal grand jury in the Southern District of Florida is investigating potential fraud, health care kickbacks, and violations related to genetic testing offered to Medicare recipients. On May 25, 2021, the Government served Defendant with two grand jury subpoenas directed to Growthlogix and 1523 Holdings. Both of these companies are Florida limited liability corporations where Defendant is the sole manager registered agent, owner, and operator. Each subpoena commands the companies to appear and testify before a grand jury or, in lieu of a personal appearance, to provide the Department of Justice with “any [and] all records associated with any work performed by this entity, or any of its employees or agents, for the following companies, from January 1, 2019 to present: Panda Conservation Group, LLC, The Health Awareness Project, Amerihealth Laboratory, LLC, MP3 Laboratory, LLC [and] R&O Smock & Associates, LLC d/b/a/ Atlantic Labs.†[D.E. 15-1, 2 at 4]. The subpoenas also seek, among other things, contracts, communications, financial records, and corporate work product, including a request that the documents be returned with a standard business records certification.

When the Government served Defendant with the two subpoenas, a grand also returned a nine-count indictment with allegations that he took part in a conspiracy to defraud the United States and solicited the receipt of kickbacks in connection with a federal health program. Although trial is set for a two-week period commencing September 27, 2021, Defendant seeks to quash the Government's subpoenas because they violate the Fifth Amendment in at least three respects. [D.E. 8].

II. APPLICABLE PRINCIPLES AND LAW

A party seeking to enforce a subpoena must demonstrate that the evidence to be gained is relevant, admissible, and specific. See United States v. Nixon, 418 U.S. 683, 700 (1974). To do so, the requesting party must be able to set forth the generally anticipated contents of the requested documents and identify the basis for believing the documents are relevant. See United States v. Blake, 2014 WL 1764679, at *4 (S.D. Fla. Mar. 25, 2014). The law presumes, absent a showing to the contrary, that a grand jury acts within its legitimate scope of authority. See United States v. R. Enterprises, Inc., 498 U.S. 292, 300-01 (1991). However, a court may quash a subpoena if compliance would be unreasonable or oppressive and the burden of showing unreasonableness of a grand jury subpoena is on the recipient who seeks to avoid compliance. See Fed. Crim. P. 17(c)(2); R. Enterprises, Inc., 498 U.S. at 301. Thus, generally speaking, the power of a grand jury to compel testimony or documents “is limited only in that production may not be compelled in violation of a valid privilege established under the common law, statutes or the Constitution.” Vingelli v. U.S., Drug Enf't Agency, 992 F.2d 449, 452 (2d Cir. 1993) (citing United States v. Calandra, 414 U.S. 338, 346 (1974)).

III. ANALYSIS

Defendant seeks to quash the Government's two grand jury subpoenas because - as the sole owner, operator, manager, and registered agent of the subpoenaed companies - he fears that any response that he provides could be used to prosecute him in connection with a pending prosecution.^[2] That is, Defendant is concerned that any production or oral testimony that he provides might be used as evidence against him in violation of his Fifth Amendment rights.^[3] Although Defendant concedes that the Fifth Amendment does not generally apply to corporations, he says that neither the Supreme Court nor the Eleventh Circuit has answered the narrow question of whether a custodian, as the sole employee and officer of a corporation, is obligated to comply with a subpoena that may be self-incriminating when the Government indicts that person. See Braswell v. United States, 487 U.S. 99, 118 (1988) (“We leave open the question whether the agency rationale supports compelling a custodian to produce corporate records when the custodian is able to establish, by showing for example that he is the sole employee and officer of the corporation, that the jury would inevitably conclude that he produced the records.”).

Defendant's arguments can be distilled into the three subparts. First, Defendant claims that there is no requirement to comply with a grand jury document request because, as the sole principal of a corporation, any compliance would violate his Fifth Amendment protections against self-incrimination. Second, Defendant says that a grand jury cannot compel him to execute a records certification because that would convey his “‘thoughts and statements' which the Eleventh Circuit has held ‘belong' to [him] personally.” [D.E. 15 at 15]. Finally, Defendant requests that the Court quash the subpoenas because the purpose of the ongoing grand jury investigation is to prosecute a pending case. We consider each argument in turn.

A. Whether the Fifth Amendment Applies to the Production of Documents

Defendant's first challenge is directed at two Fifth Amendment doctrines - the act of production doctrine and the collective entity doctrine. The act of production doctrine recognizes “that the act of producing documents in response to a subpoena may have a compelled testimonial aspect, ” in that the act “may implicitly communicate ‘statements of fact, '” such as “that the papers existed, were in [the producer's] possession or control, and were authentic.” United States v. Hubbell, 530 U.S. 27, 36 (2000). The collective entity doctrine reflects the right to resist compelled self-incrimination as a “personal privilege.” Bellis, 417 U.S. at 90. This privilege applies to individuals and sole proprietorships where they do not exist separately from the individuals that comprise them. See Braswell, 487 U.S. at 104.

Defendant says that a grand jury subpoena requiring a production of documents violates his Fifth Amendment rights following the Supreme Court's decision in Braswell. There, a corporate custodian of two small, closely held corporations sought to assert his Fifth Amendment privilege to refuse the production of corporate documents because producing the requested items would incriminate him personally as the president and sole shareholder. Id. at 100-01. The corporations had only three directors, and Braswell argued that they were so small that they constituted nothing more than his alter egos. He reasoned, much like Defendant does here, that he had a constitutional right to invoke his Fifth Amendment privilege against self-incrimination.

The Supreme Court rejected Braswell's arguments and held that a corporate “custodian may not resist a subpoena for corporate records on Fifth Amendment grounds, ” id. at 113, regardless of whether the custodian could “show that his act of production would entail testimonial self-incrimination, ” id. at 104. The Court further stated that Braswell “operated his business through the corporate form, and [that] we have long recognized that, for purposes of the Fifth Amendment, corporations and other collective entities are treated differently from individuals.” Id. The Court subsequently reaffirmed the principle that the “plain mandate of [its prior case law] is that without regard to whether the subpoena is addressed to the corporation, or as here, to the individual in his capacity as a custodian, a corporate custodian such as petitioner may not resist a subpoena for corporate records on Fifth Amendment grounds.” Id. at 109. However, in a footnote, the Court left “open the question of whether the agency rationale supports compelling a custodian to produce corporate records when the custodian is able to establish, by showing for example that he is the sole employee and officer of the corporation, that the jury would inevitably conclude that he produced the records.” Id. at 118 n. 11.

Defendant relies heavily on this footnote because this is where the Court acknowledged the unanswered question of whether a sole principal of a corporation can be compelled to produce documents under an agency theory. Defendant says that an exception to the general rule should exist and that, even if Braswell applies to single-person corporations, the case stands on shaky legal ground because of the Supreme Court's recent decisions in analogous cases.^[4] Defendant references, for example, two cases in Burwell v. Hobby Lobby Stores, Inc., 573 U.S. 682 (2014) and Citizens United v. Fed. Election Comm'n, 558 U.S. 310 (2010), because they each reflect a growing trend of a majority of the Supreme Court Justices recognizing the constitutional rights of corporations. However, other than these cases broadly concerning corporations, it remains unclear how Hobby Lobby and Citizens United undermine Braswell. Defendant merely suggests that it does but he never applies the specific facts of either case to Braswell. And the reason for that omission might be due to the fact that each case touches on discrete...